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© 2023 International Monetary Fund
SIP/2023/021
IMF Selected Issues Paper
European Department
Dutch Inflation: Developments, Drivers, and the Risk of Wage-Price Spiral
Prepared by Saioa Armendariz and Alla Myrvoda
Authorized for distribution by Bernardin Akitoby
February 2023
IMF Selected Issues Papers are prepared by IMF staff as background documentation for periodic consultations with member countries. It is based on the information available at the time it was completed on December 16, 2022. This paper is also published separately as IMF Country Report No 23/034.
ABSTRACT: Global inflation surged in 2022, driven by high gas price growth. With Russia being a key supplier of energy products, the start of the war in Ukraine has led to strong inflationary pressures in the euro area (EA), given the region’s significant exposure to the Russian gas. The price shock has been particularly strong in the Netherlands, largely due to the larger share of gas on the energy mix compared to other peers, making the country vulnerable to changing market conditions.
Against this background, this paper explores the nature of the recent acceleration of inflation in the Netherlands, taking into consideration different perspectives. The first section presents different measures of inflation and the methodological discrepancies among the indicators considered. Secondly, the paper presents an empirical assessment on the main drivers of inflation through a Phillips Curve estimation. The third section analyses the particularities of the Dutch energy mix compared to other EA peers, and the pass-through from wholesale to retail gas and electricity prices. In addition, as increasing inflation has raised concerns for a potential wage-price spiral, the fourth section presents empirical evidence on how the distribution of the total remuneration of productive factors -capital (profits) and labor (wages)- worked in the past. Finally, the paper summarizes the main findings of the study and further potential areas for research.
RECOMMENDED CITATION: Armendariz, Saioa and Myrvoda, Alla. Dutch Inflation: Developments, Drivers, and the Risk of Wage-Price Spiral. IMF Selected Issues Paper (SIP/2023/021). Washington, D.C.: International Monetary Fund.
| JEL Classification Numbers: | B55, C22, C82, E24, E31, E37, F60, J30, J39, J50, L10, L70, L94, L95, O10, Q02, Q40, Q43 |
| Keywords: | Inflation; energy; Phillips curve; wages; profits; energy mix; collective bargaining; inflation methodology; energy pass-through |
| Author’s E-Mail Address: | SArmendariz@imf.org and AMyrvoda@imf.org |
| JEL Classification Numbers: | B55, C22, C82, E24, E31, E37, F60, J30, J39, J50, L10, L70, L94, L95, O10, Q02, Q40, Q43 |
| Keywords: | Inflation; energy; Phillips curve; wages; profits; energy mix; collective bargaining; inflation methodology; energy pass-through |
| Author’s E-Mail Address: | SArmendariz@imf.org and AMyrvoda@imf.org |
Title page
SELECTED ISSUES PAPERS
Dutch Inflation: Developments, Drivers, and The Risk of Wage-Price Spiral
NETHERLANDS
Title page
KINGDOM OF THE NETHERLANDS-THE NETHERLANDS
SELECTED ISSUES
February 8, 2023
Approved By
European Department
Prepared By Saioa Armendariz and Alla Myrvoda
Contents
DUTCH INFLATION: DEVELOPMENTS, DRIVERS, AND THE RISK OF WAGE-PRICE SPIRAL
A. Different Measures of Inflation: A Methodological Review
B. The Role of Domestic and Global Factors: An Empirical Assessment
C. Wholesale Energy Price Pass-Through
D. Profits at Risk? Breaking Down the GDP Deflator
E. Conclusions
FIGURES
1. Dutch Inflation Developments
2. Measures of Inflation
3. Energy Consumption, Inflation Differential and Growth
4. Phillips Curve Coefficients for Headline and Core Inflation
5.Implied Contribution to Headline and Core Inflation
6. Gas and Electricity Prices for Households
7. Core Inflation Composition and Energy Pass-through
8. NLD vs EA: GDP and ULC Composition
9. Quarterly GDP Deflator and ULC Composition in the Netherlands
References
ANNEX
I. Phillips Curve Specification